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Further to the below, while there were some mixed signals sent yesterday, the Administration clarified today that the imposition of the section 301 duties is being suspended. It is being reported that China and the United States have made enough progress in negotiations to warrant suspending the imposition of tariffs (as well as China’s retaliatory tariffs) for now.

While this is a positive development, it is also subject to change. As a result, for now, we are recommending that companies continue to pursue exclusions just in case.

If you have any questions, please let us know.

Best regards, Ted

Dear Friends,

Further to the below, we wanted to provide a brief update on the Section 301 situation and request your assistance.

First, the update. Roughly, 2,900 comments were submitted in response to the list of Chinese-origin articles the USTR proposed to subject to an additional 25% duty upon importation into the United States. The comments were both opposed to, and in favor of, the imposition of additional duties (with the vast majority being opposed either broadly, or with regard to the inclusion of specific articles on the proposed list). A 3-day hearing was also held this past week where approximately 125 individuals provided verbal comments either in opposition to, or in favor, of the additional duties. Rebuttal comments are due this coming Tuesday, May 22nd.

Now the request — we assisted several clients prepare comments and testimony opposing the imposition of the additional duties. We also assisted these clients in discussions with their respective Congressional delegations and were able to get commitments of support. We advanced several different arguments during this process, but one, in particular, seemed to resonate especially well. Based on that positive feedback, we wanted to follow-up with all of you to see if your companies are similarly-situated and, if so, if you would be willing to join our effort to gain a broad-based exemption.

In short, we requested that USTR categorically exempt from the proposed additional duties products manufactured in China by wholly foreign-owned enterprises (“WFOEs”).

As explained in greater detail in our previous updates (below), the USTR concluded that China used foreign ownership/joint venture requirements, compulsory technology transfers, the acquisition of U.S. companies and assets, etc. to obtain cutting edge U.S. technology and that those practices were “unreasonable or discriminatory and burden or restrict U.S. commerce”[.] It was then determined that the “appropriate” remedy “to obtain the elimination” of those practices was to impose an additional 25% duty on the identified articles. So, stated simply, the USTR’s goal is to identify articles on which the imposition of additional duties will force China to change its unfair policies.

WFOEs, which are, by definition, owned entirely by non-Chinese entities, are not subject to the ownership restrictions (i.e., a WFOE does not have a joint venture partner). WFOEs in most industries are also not subject to compulsory technology transfer through government licensing, for example. As a result, the imposition of additional duties on articles produced in China by WFOEs will have no impact on Chinese government policy (i.e., there is no “forced” technology transfer when the manufacturer involved is a WFOE, therefore, assessing duties on articles produced by a WFOE does not make sense).

Accordingly, we requested that the USTR categorically exempt from any Section 301 duties articles produced in China by a WFOE. We also pointed out that such an exemption would be easily administrable from a customs perspective. A new ‘special program indicator’ could be created that, when used, meant that the importer was certifying that the articles being imported were produced by a WFOE (similar to how claims are made now under our more recent free trade agreements). Such a certification would be subject to audit/verification by U.S. Customs and Border Protection. The manufacturer identification (or MID) codes could also be used to help ensure that only articles produced (not just sold) by the WFOE were entered under the exemption.

We believe that such a request has a meaningful chance of success for a couple of reasons. The first is that exempting articles produced by WFOEs is consistent with the Section 301 determination (i.e., the goal is to get China to lift its restrictive ownership requirements so U.S./foreign companies can operate without local joint venture partners; WFOEs are already entirely foreign owned). Second, this exemption request is a lot easier to justify than picking and choosing among the large number of compelling stories U.S. companies told in the context of their HTS-specific requests (i.e., assuming the USTR wants to provide some exemptions, our categorical request would be easier to grant than picking and choosing from among the numerous HTS-specific requests companies made). Finally, it is also administrable.

As mentioned, our WFOE exemption has received positive feedback at a number of levels. Accordingly, if you are opposed to the imposition of the Section 301 duties (either because you are on the list in this round, or you fear being on the list in the next potential round) and the articles you import are produced by a WFOE, please let us know. Regardless of whether you filed comments already or not, we believe that you have the opportunity to engage with the Administration on this issue as part of our coalition.

We hope this is helpful. If you have any questions, please let us know.

Further to the below, we wanted to provide a brief update on the Section 301 situation and request your assistance.

First, the update. Roughly, 2,900 comments were submitted in response to the list of Chinese-origin articles the USTR proposed to subject to an additional 25% duty upon importation into the United States. The comments were both opposed to, and in favor of, the imposition of additional duties (with the vast majority being opposed either broadly, or with regard to the inclusion of specific articles on the proposed list). A 3-day hearing was also held this past week where approximately 125 individuals provided verbal comments either in opposition to, or in favor, of the additional duties. Rebuttal comments are due this coming Tuesday, May 22nd.

Now the request — we assisted several clients prepare comments and testimony opposing the imposition of the additional duties. We also assisted these clients in discussions with their respective Congressional delegations and were able to get commitments of support. We advanced several different arguments during this process, but one, in particular, seemed to resonate especially well. Based on that positive feedback, we wanted to follow-up with all of you to see if your companies are similarly-situated and, if so, if you would be willing to join our effort to gain a broad-based exemption.

In short, we requested that USTR categorically exempt from the proposed additional duties products manufactured in China by wholly foreign-owned enterprises (“WFOEs”).

As explained in greater detail in our previous updates (below), the USTR concluded that China used foreign ownership/joint venture requirements, compulsory technology transfers, the acquisition of U.S. companies and assets, etc. to obtain cutting edge U.S. technology and that those practices were “unreasonable or discriminatory and burden or restrict U.S. commerce”[.] It was then determined that the “appropriate” remedy “to obtain the elimination” of those practices was to impose an additional 25% duty on the identified articles. So, stated simply, the USTR’s goal is to identify articles on which the imposition of additional duties will force China to change its unfair policies.

WFOEs, which are, by definition, owned entirely by non-Chinese entities, are not subject to the ownership restrictions (i.e., a WFOE does not have a joint venture partner). WFOEs in most industries are also not subject to compulsory technology transfer through government licensing, for example. As a result, the imposition of additional duties on articles produced in China by WFOEs will have no impact on Chinese government policy (i.e., there is no “forced” technology transfer when the manufacturer involved is a WFOE, therefore, assessing duties on articles produced by a WFOE does not make sense).

Accordingly, we requested that the USTR categorically exempt from any Section 301 duties articles produced in China by a WFOE. We also pointed out that such an exemption would be easily administrable from a customs perspective. A new ‘special program indicator’ could be created that, when used, meant that the importer was certifying that the articles being imported were produced by a WFOE (similar to how claims are made now under our more recent free trade agreements). Such a certification would be subject to audit/verification by U.S. Customs and Border Protection. The manufacturer identification (or MID) codes could also be used to help ensure that only articles produced (not just sold) by the WFOE were entered under the exemption.

We believe that such a request has a meaningful chance of success for a couple of reasons. The first is that exempting articles produced by WFOEs is consistent with the Section 301 determination (i.e., the goal is to get China to lift its restrictive ownership requirements so U.S./foreign companies can operate without local joint venture partners; WFOEs are already entirely foreign owned). Second, this exemption request is a lot easier to justify than picking and choosing among the large number of compelling stories U.S. companies told in the context of their HTS-specific requests (i.e., assuming the USTR wants to provide some exemptions, our categorical request would be easier to grant than picking and choosing from among the numerous HTS-specific requests companies made). Finally, it is also administrable.

As mentioned, our WFOE exemption has received positive feedback at a number of levels. Accordingly, if you are opposed to the imposition of the Section 301 duties (either because you are on the list in this round, or you fear being on the list in the next potential round) and the articles you import are produced by a WFOE, please let us know. Regardless of whether you filed comments already or not, we believe that you have the opportunity to engage with the Administration on this issue as part of our coalition.

We hope this is helpful. If you have any questions, please let us know.

By now, you have probably seen that the President issued two new proclamations regarding the imposition of additional duties on imports of steel (25%) and aluminum (10%) under Section 232 of the Trade Expansion Act of 1962, as amended. The proclamations do the following: (1) extend the temporary exemption applicable to imports of covered articles from Argentina, Australia and Brazil while the details associated with permanent exemptions are finalized; (2) extend the temporary exemption applicable to imports of covered articles from Canada, Mexico and the EU through May 30, 2018; (3) address issues related to the application of the additional duties when foreign trade zones are involved; and (4) clarify that “[n]o drawback shall be available” with respect to section 232 duties. The steel proclamation also finalizes the permanent exemption afforded imports of covered steel articles from South Korea. Imports of aluminum covered articles from South Korea are not covered by a permanent exemption and are, therefore, subject to the additional 10% duties as of May 1, 2018. Copies of the April 30th proclamations are attached here for your reference: 2018-09841 and 2018-09840.

Since the issuance of the proclamations, it has been reported that the permanent exemption to be afforded Brazil will only apply to steel imports (in exchange for a limit on Brazilian steel exports to the USA) and that aluminum imports will be subject to the additional 10% duty. It is also been reported that the permanent exemption to be afforded Argentina will cover both steel and aluminum imports (again, in exchange for a limit on Argentine exports to the USA).

In terms of Canada and Mexico, the permanent exemptions appear to be tied to the on-going NAFTA negotiations. While those negotiations have reportedly made substantial progress in recent weeks, it is not clear whether a deal will be able to be announced in the next couple of weeks. The Administration has recently expressed concern that if a deal is not reached by May 21, 2018, then any revised agreement would need to be voted on by the next Congress, due to timing issues associated with applicable legal requirements (e.g., the Administration has to provide notice of any deal to Congress, the U.S. International Trade Commission has to do a study of any new deal, etc.). This is problematic because the next Congress (which will be sworn in in January 2019) will not have had an opportunity to help direct the negotiations (as the current Congress has) and may have a different composition as a result of the elections in October. As a result, expect the U.S. Administration to put on a full court press to get a deal done (or at least announced) before May 21st. If that does not happen, then there is an increased chance that the section 232 duties will go into effect for Canada and Mexico June 1, 2018.

In terms of the EU, the Administration has made clear that the key to getting a permanent exemption from the section 232 duties is agreeing to an export quota, or other voluntary-export-restraint-type agreement. The EU, however, has made it clear that it will not agree to any sort of quota or VRA. It has, however, reportedly offered to enter into negotiations with the United States for a new ‘trade in goods’ free trade agreement. It will be an interesting few weeks to be sure as these discussions play out.

In the meantime, we recommend that any company which imports covered articles from Canada, Mexico or the EU (or relies on covered articles from these countries imported by other U.S. parties) consider preparing product exclusion petitions now. While exclusions are not needed currently, there is a meaningful chance that such exclusions will be needed in the near future (i.e., June 1st). Given the delay in the processing of product exclusion petitions, it is important that companies which are impacted be proactive in protecting their interests (e.g., not languishing at the back of a very long line, etc.).

We hope that this update is helpful. We are assisting numerous clients deal with these section 232 issues. If you would like to discuss any of this further, please let us know.

I wanted to share with you a couple of thoughts on the Section 232/Section 301 process that I thought might be helpful.

The first is a reminder. The temporary exclusions from the Section 232 duties on steel (an additional 25%) and aluminum (an additional 10%) granted to products of Canada, Mexico, Australia, Argentina, Brazil and the EU expire at midnight on Monday, April 30th (i.e., tomorrow). While there has been some reports that the Administration intends to extend the temporary exclusions for some countries (i.e., those that have expressed a willingness to negotiate a voluntary export restraint-type agreement), that is not likely to extend to all countries. Based on what the EU has said publicly about its willingness to accept a VER, it seems likely that the additional duties will go into effect on Tuesday.

The second is also a reminder. As companies grapple with the Section 232/Section 301 duties, many are reviewing their imports and determining whether articles are correctly classified or not (e.g., if an article is on the list of products proposed to be subject to the Section 301 duties, can the article be re-classified in a different HTS provision not on the list?). Many companies are also reviewing the publicly-available data of their competitors. . . .

As many of you know, U.S. Customs and Border Protection makes available to the public manifest data for import and export shipments. The manifest data includes information such as the name and address of the foreign shipper & U.S. consignee/notify party, the ports of lading and unlading, the carrier, a description of the goods, weight, etc. This data is obtained by private companies that repackage it (and often add their best guess at classification, entered value, etc.) and then sell it to the public for a fee.

You may also know that CBP allows companies to request confidential treatment for their manifest data. Under the regulations, if a company requests confidential treatment, CBP will not disclose the names and addresses of the importer/consignee, foreign shipper or notify party and any other identifying marks.

The process to obtain confidential treatment is pretty straight-forward (it involves submitting a letter to CBP HQ) and we recommend that all clients pursue confidential treatment every 2 years.

We hope that this is helpful. If you have any questions, or if you would like any assistance with Section 232/Section 301 issues, including requesting confidential treatment for your manifest data, please let us know.

As expected, China has announced that it intends to impose 25% additional duties on $50 billion worth of U.S. imports in response to the threat of the U.S. imposing 25% duties on Chinese imports as a result of the section 301 investigation.

The list includes 106 categories of U.S. products, from agricultural products (e.g., soybeans, wheat, corn, beef, etc.) to chemicals to aircraft and autos. These duties are in addition to the additional duties China threatened to impose on U.S. products last week in response to the additional duties the U.S. has imposed on steel and aluminum under section 232.

While the trade war is escalating (and all companies should be planning accordingly), the ‘goods news’ is that this latest of round of duties do not go into effect immediately. Instead, there will be a process in the United States that will take time, and it appears that China may not impose its duties until after the U.S. duties go into effect. This gives the two governments a chance to reach a negotiated settlement of the underlying concerns. That said, until such a settlement is reached (which is not likely in the short term), companies should be taking appropriate action to prepare.

We hope this is helpful. If you have any questions about how these developments impact your business (here or in China), please let us know.

Further to the below, the Office of the U.S. Trade Representative published the list of products proposed to be hit with an additional 25% duty upon importation from China, as a result of the determination that certain acts, policies and practices by China related to foreign ownership/joint venture requirements, forced technology transfers, the acquisition of U.S. companies and assets to obtain cutting edge technology, etc. are “unreasonable or discriminatory and burden or restrict U.S. commerce” and President Trump’s March 22 memo (discussed below). A copy of USTR’s notice is attached.

According to the notice, the list was compiled by identifying the products that benefitted from China’s unfair/discriminatory policies, removing the products whose inclusion would cause disruptions to the U.S. economy and ranking the remainder by likely impact to U.S. consumers (with the list being drawn from those products with the lowest consumer impact). The products to be assessed the additional 25% duty are identified by 8-digit tariff classification. The list includes a variety of products and industries, including chemicals (many of which appear to be active pharmaceutical ingredients), drugs, iron, steel, aluminum, turbines, engines/motors, aerospace materials, pumps, compressors, various types of production machinery, scales, construction equipment, paper making machinery, various types of machine tools, hand tools, certain computer equipment & accessories, magnets, batteries, etc. Particularly hard hit are articles classified in Chapters 84, 85 and 90. At this point, the list of products is not final. The USTR is accepting comments on the proposed list of products, the appropriate duty rate, etc. until May 11, 2018 (with rebuttal comments being due by May 22, 2018). The USTR will also hold a public hearing on May 15, 2018.

All companies that import from China should review the list of products proposed to be hit with the additional duties. If you are importing one or more articles included on this list, then you should consider submitting comments to the USTR and/or appearing at the hearing, as well as pursuing other alternatives. We would be happy to discuss these options with you further, if helpful.

Also, as it just recently did with regard to the steel and aluminum section 232 duties, we expect that China will respond to this development by threatening to impose additional duties on U.S. products imported into China.

We hope that this is helpful. If you have any questions, please let us know.

Late last week, the President issued two proclamations amending his earlier proclamations imposing additional duties on imports of steel and aluminum. Copies of these proclamations may be found here and here.

The proclamations made a number of important changes to the section 232 duties. Most notably, the President extended the temporary exemption previously afforded to Canada and Mexico, to Australia, Argentina, South Korea, Brazil and the EU. In addition, the temporary exemption will now only run through April 30, 2018. As of May 1, 2018, covered steel and aluminum articles from all countries will be subject to the additional 25% (steel) and 10% (aluminum) duties unless a further agreement is reached.

The President also indicated that, if any long-term agreements are ultimately reached with any countries, such that the exemption is continued beyond April 30, 2018, he will consider whether to adjust the additional duty rates (the 25% and 10%) to ensure that the desired goal is achieved (limit imports sufficiently to allow for domestic production utilization of 80%).

The proclamations also include provisions that discuss the possible implementation of a quota on imports from exempted countries, place restrictions on articles admitted into Foreign Trade Zones and provide further detail on the product exclusion petition process (e.g., additional criteria for approval and retroactive treatment for approved petitions).

Regardless of what you think of the policy, the threat of significantly increased duties has (thus far) had the desired result, as many countries have sought to negotiate with the United States. It will be interesting to see what unfolds over the next few weeks (e.g., will the imposition of section 232 duties to Canada and Mexico be tied to concluding the NAFTA renegotiations? will countries like Japan seek its own long-term exemption? if long-term exemptions are granted, will the duty rates be increased to even higher rates? what sort of voluntary-restraint type of agreement/quota will be required in order to obtain a long-term exemption?). All companies that utilize steel or aluminum articles (whether imported or domestically-produced) should be taking steps now to review the economic impact the section 232 duties will have on their business. Consideration should be given to the impact on long-term supply agreements (whether upstream or downstream – who bears the cost of increased duties?), the impact on market competition (e.g., are you making a product here with imported steel or aluminum, but competing against finished products produced abroad and imported into the United States without being subject to the section 232 duties?), etc.

We are assisting numerous companies navigate these issues (as well as the product exclusion process) and would be happy to discuss your situation with you further. If you would like to do so, just let us know.